Euro Pounds Brief Wednesday 21st March 2007

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Wednesday 21/03/2007

• Sterling rallies on the back of inflation data
• April rate hike looks more likely
• BoE’s Barker unconcerned about growth, inflation top of MPC list
• FOMC rate decision due this evening; no move expected
• Yen continues to slide as carry traders return
• Oil stable ahead of US stocks data

US Dollar:

Not a particularly active day for the dollar other than on cable. Euro-dollar remains at around 1.33 ahead of
the Federal open Market Committee’s rate decision at 1915GMT. No move is expected however the text will
be crucial as the Fed weighs up the conflicting forces. Inflation is looking unlikely to move back to the 2%
targeted by the Fed but the cooling real side of the economy and the sub-prime worries will be causing
nerves. The general tone of the report from last time out could change dramatically. Markets may well be left
very disappointed by the US outlook.
Other than the Fed decision there is only one release which is mortgage applications.

Pound:

Inflation data surprised to the upside yesterday causing the pound to rally sharply. The headline CPI figure
came in at 2.8% to an expected 2.7% which may prompt the MPC to move to 5.5% earlier than anticipated.
Sterling rallied a cent against the Euro and over a cent against the dollar following the data.
Last night Kate Barker of the MPC noted that she was a little more concerned about near term inflation than
she was last month and that she sees no signs of the recent hikes slowing growth.
Today we see the minutes of the MPC’s March meeting and we’re expecting 7-2 in favour of a pause however
we may see 6-3 with Gieve defecting to the hawks. In addition we have the Budget at 1230GMT.

Euro:

A fairly quiet day for the Euro posting gains against the yen and losses against the pound. The European Union’s
Juncker said that ECB policy has not harmed growth underlining the recent ECB hawkish undertones.
Very little data due from the markets today; Italian consumer confidence being the highlight of the day. ECB
President Trichet is scheduled to speak early this morning.

General News:

• The yen suffered further weakness in trade yesterday with the carry traders coming back into the markets
in size. The Japanese market is closed today for a National holiday so overnight trade has been
relatively quiet.
• The Australian Treasurer noted overnight that the strengthening Aussie dollar is having an impact on
Australian exporters. This caused a touch of weakness for the Aussie however it is still looking fairly
strong.
• Oil traded down in technical trade yesterday however it did rally back ahead of an expected drop in oil
stocks with data due this afternoon. This morning oil is trading $59.50.

Interbank foreign exchange rates:
Updated 21th March
G BRITISH POUND / US DOLLAR 1.9632
GB POUNDS / EURO 1.4749
EURO / US DOLLAR   1.3308
GB POUND / JAPANESE YEN 230.62
GBP/AUD 2.4516
GBP/NZD 2.7862
GBP/ZAR 14.4844
GBP/CHF 2.3808
GBP/CAD 2.2803
GBP/SGD 2.9927
GBP/THB 63.948
GBP/HKD 15.3342